I don't know squat about economics at this level. But, there are some simple truisms that send up a red flag here.
1st, the rush to solution. A rush so fast we won't know what's happened until years later.
2nd, The players involved all have a vested interest in the bailout, either for their political reputations or personal fortunes. The argument is made that we all rise or sink with the tide, but where stocks are concerned I imagine a balanced portfolio in a 401k will fall less far than those with a huge compensation package or heavy stock positions related to financial stocks and institutions.
3rd, the liquidity crisis and the financial crisis are related, but apparently not exclusively so. You could find a solution to liquidity while the markets work themselves out.
4th, this changes the economy and US capitalism in a fundamental way that is very disturbing. It also continues a pattern of central govt. control that is disturbing itself, part of the New World Order, share the world socialism ideal that I don't believe is a good thing. Let's build a new world globalized house of cards that's great, up until China goes to war over water rights or we need to fight a full WWIII in the middle east over nuclear terrorism and we no longer have a manufacturing base, etc.
5th, there is no consensus that this is the right solution. In fact, you can find as many opposing viewpoints as you can support. Such as:
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.
Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.
Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen...
Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
Again, I don't know squat. But I do know that if you follow the basics and common sense your are right more often than not. I knew the .com bubble was a house of cards very early on and anticipated the year it would collapse. I even saved, at the time, the copies of Wired magazine talking about the so-called "New Economy," etc. where fundamentals didn't matter anymore -- for a future laugh. The real Estate bubble was the same. I predicted a year ahead the last window of opportunity to sell my house easily and at a peak profit, if we wanted to go that route. I avoided doing stupid things in the RE market, that others didn't give a second thought about at the time. I figureded they would probably pay for their mistakes in time, not me.
We never really had the full correction, IMO, from the .com era and then the money moved into real estate and now futures, and we seem to be fiddling in small and large ways to keep the market from correcting. It's just a gut feeling, and it could very easily be wrong, but this doesn't really add up to the hype. I get the feeling those that have been selling short and riding the wave have far more to lose and far more influence over the process than the common US taxpayer who they want to pick up the bill. And then, eventually, the ignored fundamentals create a deeper crisis that fiddling can't correct and we're still screwed and a trillion dollars poorer than we needed to be.
Too bad we cant trust Washington or the media for better guidance on this.
